Abu Dhabi, UAE – The UAE has unveiled a series of relief measures to support the growth and prosperity of small and medium-sized enterprises (SMEs) since the introduction of corporation tax in the UAE.
“It’s important for SMEs to familiarize themselves with the intricacies of corporate tax regulations and integrate them into their accounting procedures,” Rayhan Aleem, the Founder and Managing Partner of Alpha Pro Partners, a customer-centric accounting firm. “Despite the abundance of information from diverse sources, not all of it accurate, SMEs should rest assured that ample assistance is accessible to ensure their continued success.”
There have been 24 pieces of legislation released since the announcement of Corporation tax in the UAE. Here are the key takeaways that affect entrepreneurs summarized by Aleem.
Annual Income Threshold for Corporate Tax: Entrepreneurs running smaller companies might find relief, as only profits exceeding AED 375,000 are subject to the 9% corporate tax. Taxable profits below this threshold attract a 0% corporate tax rate.
Small Business Relief (Article 21): Companies with revenues under AED 3 million can benefit from this relief, allowing them to be considered without any taxable income in specific tax periods. This reduction in tax costs and compliance requirements is mainly applicable to mainland businesses, with free zones and multinationals excluded.
Business Restructuring Relief (Article 27): Certain forms of business restructuring, such as mergers or demergers, can transpire without incurring taxable gains or losses. This provision facilitates tax-neutral restructuring transactions.
Interest Expenditure (Article 29): The article outlines circumstances under which interest on business loans can be tax-deductible against profits subject to corporation tax. Both conventional and Sharia-compliant loans are considered.
Entertainment Expenditure (Article 32): Only 50% of entertainment expenses are deductible against taxable profits. However, 100% of employee entertainment expenses can be claimed.
Payments to Connected Persons (Article 36): Payments to connected individuals, such as directors or owners, must adhere to market value and solely serve business purposes to prevent inflating salaries for personal gain.
Tax Loss Relief (Article 37): Tax losses can be offset against subsequent taxable income within specific conditions.
Withholding Tax (Article 45): The UAE’s withholding tax rate is presently set at 0% in most instances, distinguishing it from other GCC states.
Foreign Tax Credit (Article 47): Foreign tax payments can be employed to decrease taxable income.
Accounting Standards and Methods: Small businesses with revenue below AED 3 million can apply cash-basis accounting, particularly beneficial for those with substantial accounts receivables.Free Zones (Article 3): Qualified income for entities in qualifying free zones can avail a 0% corporation tax rate. This applies to income derived from specific transactions and activities, including manufacturing, processing, fund management, and more.